Making Sense of the Manhattan Commercial Real Estate Market

Tenants always ask me to make some sense of the market. Sometimes things just don't seem to add up, or work in unexpected ways that can seem opaque and confusing at first to the inexperienced tenant. But a closer look at trends in the Manhattan region and analyzing what different landlords do in situations can reveal exactly what is going on behind the scenes in the seemingly-random price jumps in the commercial real estate market.

The first half of 2012 can certainly be categorized as an interesting period in the Manhattan commercial real estate market, especially regarding office space in areas such as Chelsea, Soho, etc. While the economy is not in a great and stable place, office space is actually soaring in price and there are multiple offers coming in on new listings as they hit the market. Most clients scratch their heads when trying to wrap their minds around this concept. "How is it possible that office space is so expensive at a time when businesses are not doing all that well?" Well, the answer is simple:

1) Midtown South is a hot area and so, while many areas have tons of office space available, the areas of Chelsea, Gramercy, Noho, Soho, Tribeca do not. Many tenants are flocking to these areas from all other locations in Manhattan.

2) Many tenants in Midtown South are choosing to stay put. While many tenants in Midtown South may elect to consider the idea of moving to another unit within the neighborhood, they may be displeased with the minute number of options in the market. Since many of these tenants are not exactly exploding out of their space from a growth standpoint, they choose to renew the lease where they currently are instead of pulling up their roots to relocate elsewhere. The result is that landlords end up churning out a great deal of lease renewals and their buildings are nearly fully leased. Once all landlords in the neighborhood have very little vacancy, they are less flexible regarding pricing and deal-making on their current vacancies. Thus, prices rise in the neighborhood across the board.

The truth, in my opinion, is that these neighborhoods are only going to increase in market rate value for the next few years. If you are considering a move to office space, do not "wait until the market calms down." I can certainly say that as a broker, I feel that we experienced the market lows in 2008-2010 and prices are only going to continue on a steady incline from here on. If you need to move, move now. If you need to renew your lease, renew early!

Remember, the key to staying within a good commercial real estate lease lays in foresight and knowledge. Once you are equipped with the familiarity of how the commercial Manhattan real estate market works, you will be much better suited to ride out the various trends and patterns that inevitably develop, and to keep your business housed and running as smoothly as possible.